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Just some thoughts on the Anglo Irish Bank “Golden Circle” deal

It’s a little removed from the normal content of the site, but I was thinking yesterday evening on the implications of the deal allegedly entered into between the so-called “Golden Circle” and Anglo Irish Bank. Given the newspaper coverage, here’s how things are supposed to look at the moment for each of the chosen 10:

  • Borrow €30m from Anglo Irish Bank
  • Buy Anglo Irish Bank shares off the stock exchange – probably at a preferential price (i.e. cheaper)
  • Anglo Irish Bank goes tits up with the the implications that the shares are worth nothing after Government nationalisation
  • Because of the loan conditions, Anglo Irish Bank can’t go after the €75m collateral that the “Golden Circle” had previously offered – so they get to keep their houses
  • It’s now expected that that the €300m in loans will also be written off by Anglo – and now they’ve no debts and get to keep their houses

All very nice and cosy – these 10 unnamed people came to the rescue when asked (by whom we don’t know as of yet – Anglo Irish Bank, or the Financial Regulator, or the Government?). But I think it could get better for the “Golden Circle”:

  • There is a commission working at the moment on assigning an valuation to the shares of Anglo Irish Bank at the time of nationalisation.
  • If that commission comes back and says that Anglo Irish Bank was worth, lets say, 25c per share, at the time of nationalisation, then each of the 10 lucky punters will get a good proportion of their money back (proportion depends on the preferential share price mentioned above)
  • So now, the “Golden Circle” have received cash from the government for the shares that they had originally borrowed money from Anglo to buy in the first place – but because the loans are written off, they don’t have to repay the money, so that money is essentially pure profit.
  • But, it’s profit that they won’t be paying tax on probably. Because they’ll technically have made a loss on the purchase price of the shares compared to the money they’re getting back from the Government, they’ll have a capital loss that they can use to offset against any other profits made elsewhere in their dealings.
  • So, at the end of it all, it’ll really be free money for the “Golden Circle”.

Nice work if you can get it. But this is just my personal speculation on what could happen. There’s a big IF in there – that the independent commission will actually assign a value to the Anglo Irish Bank shares at the time of nationalisation.

A similar situation arose in the UK with the nationalisation of Northern Rock and the decision by the government there was not to pay anything to the shareholders – despite a High Court case. They decided that Northern Rock was worthless at the time of nationalisation – and all shareholders lost out completely.

Here’s where I think we’ll see actually how “chosen” the “Golden Circle” actually will be – at the end of the day, it will be decided (quite wrongly in my opinion) that Anglo was actually worth something on the day of nationalisation.

That will allow my speculation actually come true, and the “Golden Circle” will clean up at the expense of the taxpayer in more ways than one.


Worried about Northern Rock?

The MoneySavingExpert has some advice on his website at the moment for anyone who may be worried about the Northern Rock situation. Despite all the assurances from the UK and Irish Financial Regulators and the respective governments, many people are still looking to withdraw their money from Northern Rock. If you’re one of those people who’s still worried, check out the advice here.

There are a couple of aspects to this that I find interesting:

  • There is much coverage of the fact that the savings of customers are protected by the UK Financial Services Compensation scheme – however, there hasn’t been much detail of what this involves – particularly because of the fact that the more you have, the greater the chance you won’t get all your money back.
  • If you have a savings account then the maximum level of compensation is £31,700. This is broken down so the first £2,000 is 100% protected. The next £33,000 worth of savings is 90% protected. Happily, if you have savings of £2,000 or less then you have absolutely nothing to worry about, even in the unlikely event of Northern Rock going bust. If you’ve deposited a lump sum of £20,000 then you would receive compensation of £18,200. You may not be able to recover all of your savings, but at least the vast majority is safeguarded. (From the Motley Fool).
  • The Financial Services Compensation Scheme can only help if the company concerned has actually gone out of business – at the moment, it’s no use to anyone.
  • Should this process be needed, it’s not quick. From this information booklet:
    • Q. How long will it take to process my claim?
      A. After a declaration of default, FSCS generally aims to process your claim within six months of receiving an application form.
      However, delays may be caused by factors outside our control or because the case is particularly complicated. If you are facing particular hardship, we will try to deal with your claim as a priority.
  • And finally, in breaking news, if all comes to all, the British Government have confirmed that they will guarantee 100% of the savings of Northern Rock depositors – according to CNN here.

I’ve been told by a couple of people that Northern Rock are being very slow to sort out their website which is inaccessible at the moment – saying that it appears broken on purpose – it doesn’t even let you try to log in. Apparently, no matter when you try to log in, you get this error – even at 4am in the morning.

An interesting way to prevent a “run” on the bank – particularly as if you’re an internet customer, you’ve probably signed up to T’s&C’s which mean you don’t get to visit a branch or call an actual person.

But of course, that’s all the “doomsday scenario”. What I would love to know now is where is all the Irish Northern Rock euros going to go now? Will people look at this event and think that they really only can trust Bank Of Ireland or Allied Irish Banks now? Despite the comparatively low interest rates they offer compared to Northern Rock or Anglo Irish Bank?


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